Tax News & Views Axes Reg Review Roundup

Tax Rules Exempt From White House Review Under New Pact - Naomi Jagoda, Bloomberg ($):

The memorandum of agreement, dated June 9, takes effect immediately and supersedes a 2018 agreement under the Trump administration between Treasury and OMB. It exempts from the OMB’s Office of Information and Regulatory Affairs’ standard centralized review process “tax regulatory actions, defined as a regulatory action (as defined by Executive Order 12866) issued by the Internal Revenue Service whether pursuant to Title 26 of the United States Code or with respect to any other United States Federal income, excise, estate, gift, or employment tax.”

Tax regulations generally weren’t subject to OIRA review, but in 2018 Treasury and OMB agreed that tax regulations would receive OIRA reviews if they likely interfered with actions planned or taken by other federal agencies, raise new legal or policy issues, or had an annual non-revenue economic impact of at least $100 million.

Biden Drops OIRA from Tax Regulation Review Process - Alexander Rifaat, Tax Notes ($):

Kristin E. Hickman of the University of Minnesota Law School views the new agreement between Treasury and the OMB as a setback.

...

Hickman, who served as a special adviser at OIRA during the Trump administration, dismissed arguments that the review process added further complications to implementing tax regulations.

“It’s overblown and exaggerated . . . to the extent that OIRA review imposes a procedural burden I think the benefits outweigh the costs,” Hickman said.

 

IRS Nixes Tax Edge for College-Sports Booster Groups Paying Athletes - Richard Rubin and Laine Higgins, Wall Street Journal ($):

The Internal Revenue Service began blocking an increasingly popular method for funneling wealthy boosters’ money to college athletes, declaring that so-called “name, image and likeness” collectives generally can’t be structured as charities. 

Donations to athletic departments that subsidize coach salaries remain just fine.

 

GOP Tax Package Headed for Markup - Chris Cioffi, Bloomberg ($). "Tax talks will begin at a Tuesday markup on the bills. Ways and Means Democrats and Republicans are expected to spar over the provisions, as the GOP left out measures on the child tax credit, the Low-Income Housing Tax Credit, and a tax code fix for auto dealers."

A deep dive into the GOP tax package - Benjamin Guggenheim, Politico:

What’s lurking behind the scenes of all of this, though, is the big tax showdown of 2025. That’s because many of Trump’s tax cuts, including the income bracket rates for every taxpayer, are scheduled to expire at the end of the year unless Congress finagles a $3.5 trillion extension of those tax laws.

Planning for the tax battle royale in 2025 is evident, for one, in how long the GOP tax package proposes reviving certain tax provisions for businesses, such as immediate deductions for research and development costs, full allowances for asset depreciation and an expansion of business interest expensing.

The package would only restore those until the end of 2025 when the rest of the TCJA would also have to be reckoned with.

Three Proposed Bills Introduced by Chair of Ways & Means Committee - Ed Zollars, Current Federal Tax Developments. "The Chair of the House Ways and Means Committee has recently introduced three tax bills. These bills are slated for consideration by the Committee during the week commencing June 12. These bills are anticipated to serve as the initial framework for negotiations in crafting a tax bill or bills that could potentially be enacted in 2023."

What’s in the Republican Economic Tax Package? - Adam Michel, Liberty Taxed. "Ways and Means Committee Republicans recently introduced the American Families and Jobs Act, an economic tax package that addresses significant ongoing tax increases on domestic investment built into the 2017 Tax Cuts and Jobs Act. Most of the Republicans’ major proposed changes in the American Families and Jobs Act expire after 2025, worsening current tax uncertainty and obscuring the necessary reforms’ fiscal cost."

Details and Analysis of the American Families and Jobs Act - Erica York, Huaqun Li, and Alex Durante, Tax Policy Blog. "House Republicans have proposed three new tax bills packaged as the American Families and Jobs Act that would temporarily extend certain business provisions from the Tax Cuts and Jobs Act (TCJA)—including 100 percent expensing for investments in equipment and research and development (R&D) through the end of 2025—create a bonus standard deduction for individuals through 2025, and curtail many recently enacted green energy tax credits, among other changes."

 

‘Roth’ SECURE 2.0 Provisions Threaten Retirement Plan Catch-Ups - Austin Ramsey, Bloomberg ($):

This “Rothification” of SECURE 2.0 has introduced a host of unanswered compliance questions and left the IRS scrambling to clear things up before some new provisions take effect next year. Chief among those concerns is an employer mandate that catch-up contributions that high-income workers make to boost their account balances near retirement be made solely on a Roth basis.

...

The American Benefits Council has called on the IRS to delay implementing the SECURE 2.0 catch-up provision in order to prevent many participants from losing their ability to secure enough retirement savings at the end of their careers.

Employers soon will face a real decision about whether they can add Roth accounts in enough time for the 2024 plan year or eliminate catch-up contributions as an option, the group said in a June 7 policy statement.

 

The Domestic Content Quandary - Marie Sapirie, Tax Notes ($). "The domestic content bonus credits available in sections 45, 45Y, 48, and 48E are key pieces of the effort in the Inflation Reduction Act (IRA, P.L. 117-169) to increase U.S. manufacturing. However, project developers that hope to claim the credits face a significant challenge under Notice 2023-38, 2023-22 IRB 872, which requires them to ask suppliers to disclose their costs. That would reveal the suppliers’ profit margins — sensitive information that most won’t want to share."

Manchin Slams IRS Over Proposed Clean Vehicle Tax Rule - Jared Serre, Law360 Tax Authority ($). " For example, Manchin, D-W.Va., took issue with the establishment of a 50% value-added test for determining whether a critical minerals requirement is met that was not a congressional initiative."

Related: Business Credits & Incentives. 

 

ChatGPT Court Brief Offers Cautionary Tale for Tax Pros, Too - Andrew Leahey, Bloomberg ($):

The plan? Simply dump the data into ChatGPT and ask for it in a different format. The entered prompt was something along the lines of, “Please take the names in this list and put them in a table grouped by employment status.”

It’s not a bad plan from a technical perspective. Reformatting information given into some other form is one area where language models really do excel. Many practices within the tax industry would benefit from automating those sorts of tasks. Unfortunately for the fictional practitioner, the data dumped into the model was ingested by this also fictional version of ChatGPT... Personal information has been leaked and we’re in full-blown data breach territory—that’s a big problem for everyone involved.

 

You Scored With an Online Sports Bet. Do You Owe Taxes? - Laura Saunders, Wall Street Journal:

Here’s where things stand. Gambling winnings are taxable at ordinary income rates, and they’re reported on Line 8b of Schedule 1 of the 1040 form unless the filer qualifies as a professional gambler, which is hard to do. For nonprofessionals—think most online bettors—losses are deductible up to the amount of their winnings. So if someone wins $700 and loses $750, then $700 of losses are deductible. 

There’s a big catch: Gambling losses are an itemized deduction on Schedule A, along with deductions for mortgage interest, state and local taxes and other items. But the 2017 tax overhaul greatly increased the standard deduction taxpayers get if they don’t itemize, so only about 10% of filers now itemize compared with about 30% before.

 

Missed Tax Day? File by June 14 to avoid larger IRS penalties - Kay Bell, Don't Mess With Taxes. "The late-filing penalty is 5 percent of the unpaid tax for each month or part of a month that an annual tax return is late. If the taxpayer tardiness drags on, this failure to file penalty can amount to an eventual maximum of 25 percent of unpaid tax."

California Flood Victims Being Flooded With Erroneous IRS Notices - Amber Gray-Fenner, Forbes. "Both the IRS and tax professionals have spent untold amounts of time and money convincing taxpayers not to ignore IRS notices. Now the IRS is saying it’s OK to ignore this one. It’s not a good look."

 

Tax Court Lacks Jurisdiction Over Seriously Delinquent Tax Debt Notice Requirement - Parker Tax Pro Libary. "The Tax Court held that the liabilities of a taxpayer who owed more than $100,000 in unpaid taxes and penalties relating to eight tax years constituted a 'seriously delinquent tax debt' under Code Sec. 7345 and the IRS's certification of such debt to the Secretary of State for action with respect to the denial, revocation, or limitation of the taxpayer's passport was not erroneous."

Malta Retirement Plans – The Jig is Really Up! - Virginia La Torre Jeker, US Tax Talk. "Things are looking worse and worse for Americans who invested in Malta personal retirement plans. Not only has the Internal Revenue Service (IRS) listed them twice on its Dirty Dozen tax scams list, it has now proposed rules that will require taxpayers and material advisers to specially put the IRS on notice about their use."

IRS Tax Lessons From Trump Indictment - Robert Wood, Forbes. "Experienced tax lawyers will tell you that a common way of turning a regular tax case into a criminal one is obstructive or evasive behavior with the IRS."

 

Some Tax Figures Should Not Be Adjusted for Inflation - Annette Nellen, 21st Century Taxation. "But some figures, such as filing thresholds for information reports such as 1099-INT and 1099-NEC, should not be adjusted for inflation as doing so will increase non-reporting otherwise known as the tax gap (amount of tax owed less what is actually collected). There are often proposals to increase the 1099-NEC filing threshold from $600 which was set in 1954 to its inflation adjusted amount of about $7,000 today."

Bill Would Strip PGA Tour Of Tax-Exempt Status After Saudi Merger Announcement - Kelly Phillips Erb, Forbes. "The PGA Tour is tax-exempt under section 501(c)(6) of the Tax Code. The section applies to 'Business leagues, chambers of commerce, real-estate boards, boards of trade, or professional football leagues (whether or not administering a pension fund for football players), not organized for profit and no part of the net earnings of which inures to the benefit of any private shareholder or individual.'"

2023 Tax Season Takeaways: Fewer Filers as IRS Rebounds - Robert Weinberger, TaxVox. "But the data show things aren’t entirely back to normal. Typically, the volume of total returns filed with the IRS grows by an average of 1 percent annually. Through April 28, the number of returns filed declined by 1.9 percent, largely due to the expiration of COVID-related tax breaks and a spate of natural disasters."

 

Was the UTPR Necessary? - Alex Parker, Things of Caesar. "The UTPR picks up the difference between that low-taxed amount and what it would get with a 15% rate–the “top-up tax.” They can either achieve this by denying the local entity a deduction–more in keeping with anti-abuse rules already in use–or by just levying a tax. In the latter case, this means the tax is applied locally, but on unconnected foreign income, a major upheaval of current global tax practices. It also can significantly affect tax incentives that countries enact to spur various domestic activities, vexing notions of national sovereignty."

A Little Rule with Big Impact - Rasmus Corlin Christensen. "It allows countries to tax profits that are neither earned in their jurisdiction nor earned by their resident companies. On the contrary, it allows countries to tax income earned outside their jurisdiction (anywhere in the world!) by foreign companies (wherever they are based!). Practically, the UTPR works by giving any country where a multinational company has some presence (e.g. a subsidiary or permanent establishment) the right to apply a top-up tax if the company has an effective tax rate below 15% in any country around the world. Imagine giving China the right to tax some of Apple’s European profits through Apple’s Chinese subsidiary because the company pays a low effective tax rate in Ireland. That’s the gist of it!"

 

Arizona man sentenced to nine years in prison for “massive” tax fraud scheme - IRS (Defendant name omitted).

Defendant pleaded guilty in January 2023 to three counts of aiding or assisting the filing of fraudulent tax documents. At the sentencing hearing, U.S. District Judge John H. Chun rejected the defense request for a sentence of home confinement, commenting that Defendant's fraud was "a massive tax fraud scheme." Judge Chun said he was struck by the "outrageous nature of the fraudulent scheme" and Defendant's "fraudulent and deceitful behavior."

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According to records in the case, Defendant falsely claimed in tax filings that he had lost more than $135 million by investing in solar equipment. Defendant then "sold" those made-up losses to taxpayers through a network of tax preparers, telling the preparers that their clients could use Defendant's losses to claim refunds on their own tax returns. Taxpayers would file amended returns claiming that, because of the losses transferred from Defendant, they were entitled to a refund of all the tax payments they had made in a prior tax year. After receiving the fraudulent refunds taxpayers paid 90% of the proceeds to Defendant.

File a return with someone else's losses and pay that person 90% of the refund. Sounds legit! Must have been some "network of tax preparers."

Taxpayers participating in Defendant's program filed nearly 3,200 fraudulent tax returns. In all, Defendant's scheme resulted in a loss to the U.S. Treasury of over $50 million. Defendant collected $45 million.

...

For example, in 2013 alone, Defendant claimed his businesses lost more than $40 million through investments in solar equipment. In fact, the businesses spent only about $150,000 on solar equipment that year. From 2012 to 2018, Defendant's companies claimed to have lost more than $135 million on investments in solar equipment. The companies spent less than $6 million on solar equipment over that period.

A bit aggressive. 

The moral? If it sounds like nonsense, it just might be nonsense.

 

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